Over the past year, the Obama administration has been boasting of a recovering economy. They point to the rising stock market, the reduction in unemployment figures and a reported increase in the GDP.
We all know how misleading the unemployment figures are. Many reports abound that indicate a great portion of the decrease is due to the millions of Americans that have exhausted their unemployment benefits and given up on trying to find a job. Many employment experts claim that the true unemployment figure is well into double digits.
The Gross Domestic Product (GDP) is also not painting as rosy of a picture of a recovering economy as the Obama administration would have you believe. A month ago, the Bureau of Economic Analysis released their preliminary report on the first quarter’s GDP stating that the economy grew by only 0.2%. Even though that is an increase, it’s not nearly enough to indicate an economic recovery.
However, the Bureau of Economic Analysis is issuing a second and revised report on the first quarter GDP and if they are right, it’s not good news for the Obama administration. Their latest report states that the first quarter GDP actually contracted or dropped by 0.8%. This indicates that the economy is weaker than originally thought.
Ethan Harris, an economist with Bank of America Merrill Lynch is also predicting that the reports will indicate a drop in the first quarter economy of around 1.2%. However he warns that it is premature to be talking recession yet, saying:
“In what seems like an annual rite of spring, perma-bear economists have come out of hibernation, declaring a rising risk of recession. After all, they argue, GDP probably dropped in 1Q, and a variety of other key indicators point to recession risk, including credit and sales variables and the Treasury yield curve. We don’t buy it. We believe the 1Q GDP data greatly exaggerate the weakness in the economy and only a very selective reading of the data signals a significant recession risk.”
“Looking ahead, it is much too soon to declare victory, but we expect the data to improve in the months ahead as seasonal and other distortions fade. This should pull in market pricing for the first rate hike and cause a modest strengthening of the dollar, in our view.”
So how do we read the current economic indicators? Is the economy truly recovering despite the first quarter reports or is it still weak and struggling? Is the optimism being shared by some economists only the tip of the iceberg with the real danger lying below the surface waiting to rip the economy wide open? I for one am not overly confident that we are in a true recovery and out of danger.